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Loan Modification A Loan Modification is a permanent change in one or more of the terms of a loan, allows the loan to be reinstated, and results in a payment the owner can afford. This option is for people that have had a hardship and cannot currently afford the monthly mortgage payment but is expect to be able to in the future. The bank will work with you based on how much you can pay monthly based on how much you make and adjust your mortgage to that amount for a period of time (typically with the lowest payments for the first year and slightly increasing your payment amount every year) before readjusting your payments closer to the original amount. Proof of employment is required for a bank to consider a loan modification as they need to work with a debt to income ratio. The bank will also require a hardship letter explaining why you can't make your current payments and will need to check your financial situation by looking at bank statements, investment accounts, pay stubs and other financial records. A loan modification makes the most sense to people that have a slight amount of equity or are barely upside-down and want to keep their property. Short Sale A short sale is a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold. Lenders are willing to do this because although they are taking a loss they would rather you sell the property for what they would be able to sell it for as a foreclosure and not have to own and maintain the property. It's typically a win-win situation for the seller and buyer as well - there are a number of benefits to the seller of a short sale as opposed to a foreclosure (possible better credit,the ability to buy another property in 2 years vs. 5-7 years) and the buyer of a short sale gets a good deal on a property without having to deal with common foreclosure issues due to an uninhabited property. The bank will typically cover all the costs of the short sale - paying for the fees that the seller would normally pay for including the real estate agents commission. Similar to a loan modification the requirements of a short sale includes a hardship letter as well as bank statements, investment accounts, pay stubs and other financial records - with the only difference being that the seller does not have to be currently employed to do a short sale. A short sale makes sense to people that have an upside-down property they want to get rid of but want to maintain their credit and prevent a foreclosure on their credit rating. Foreclosure The last option - a foreclosure is the legal and professional proceeding in which the lender obtains a court ordered termination of a mortgagor's equitable right of redemption and takes the property. A foreclosure on your record prevents you from purchasing a property for 5-7 years along with typically a larger hit on your credit rating then a short sale. Even with that said there are still reasons to go into foreclosure - sometimes a bank will not accept a short sale or loan modification or if you are filing for bankruptcy then a foreclosure might make sense as well.
As always for legal advice on your options please consult a competent real estate lawyer and for more information about tax ramifications with short sales and foreclosures please consult an accountant. |
Are you facing foreclosure and not sure of your options? Tired of the mortgage companies and attorneys pushing a loan modification or bankruptcy - real estate agents pushing short sales - and the bank pursuing a foreclosure? Below is a basic breakdown of your options to get out of your current situation and suggestions on what option might be the best for you.